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Malaysian timber company prices HK IPO at the top

Samling raises $280 million at a premium to smaller Malaysian peers amid expectations that wood prices will continue to climb.
Malaysian forestry and timber products company Samling Global has fixed the price of its Hong Kong initial public offering at the top end of the range at HK$2.08, allowing it to raise the maximum $280 million. The outcome was entirely in line with expectations after overwhelming demand from both institutional and retail investors.

If the interest persists after the stock starts trading on March 7 and the 15% overallotment option is exercised in full, total proceeds will rise to $322 million.

Investors were keen on the companyÆs growth prospects amid increasing demand for timber and tight supply û a combination that analysts expect will lead to a sustainable rise in selling prices this year. SamlingÆs large scale and broad international presence, which includes logging operations in Malaysia, Guyana and New Zealand, were also attractive to investors, observers say. The company sells its products to more than 30 countries.

Even the fact that the final two days of the roadshow coincided with a sharp drop in the Hong Kong market failed to upset the momentum and local retail investors ended up subscribing for more than 900 times the 10% portion initially available to them. The institutional tranche was well over 100 times covered after a clawback reduced this portion of the offering to 50% in order to allow for an increase of the retail tranche.

According to a source close to the deal, about 250 institutional investors came into the book and the conversion ratio from the one-on-one meetings during the road show was about 90%. Still, with retail investors (as is common practice nowadays) taking half the deal, institutional investors will end up with only $140 million worth of shares between them, suggesting individual allocations will be small.

The retail subscription frenzy has been in place for a few months now, with one banker noting that the average oversubscription ratio for the 13 Hong Kong IPOs before Samling was 220 times. And of all those deals, only one (China Properties Group) was covered less than 100 times û the trigger point for the maximum clawback.

As long as the newcomers are attractively priced and continue to trade up after listing, there is no reason why the buying should stop just because of a correction in the broader market, observers say. In fact, investors often prefer to put their money into new listings at times of market weakness since they are usually offered at a discount to their already listed peers.

Samling, which will be 60% controlled by Samling Strategic and MalaysiaÆs Yaw family at the time of listing, sold 1.05 billion new shares or 25% of the company. At the final price the stock is valued at 15.3 times its forecast earnings in the year to June 2007 and 11.5 times its fiscal 2008 earnings, which puts it at a premium to some of the other Malaysian forestry companies, which trade at 2007 P/E multiple of 10 to 12 times (on a calendar year basis) depending on what earnings forecast one uses.

Most of these companies are fairly illiquid and also much smaller in terms of market capitalisation and sources say investors generally accept that SamlingÆs more global focus should warrant a premium over these comps.

The company also has substantial forest resources of about four million hectares - roughly the size of Switzerland û which means it is largely self-sufficient in terms of supplying logs for its downstream operations with little need to buy timber in the open market. It also plans to use about HK$644 million ($82.5 million) of the net proceeds from the IPO to acquire further concessions, harvesting rights and plantations to increase its woodflow (the amount of wood harvested).

Japan is the companyÆs top market for plywood and veneer, accounting for 36% of revenues in this segment in the most recent financial year, followed by North America with 19%, Greater China with 11% and Europe with 9%. Log sales on the other hand go primarily to developing markets with Greater China at the top of the list, accounting for 30% of segment revenues, followed by Malaysia with 23%, India and Pakistan with 18% and Japan with 14%.

The offer was jointly arranged by Credit Suisse, HSBC and Macquarie.



¬ Haymarket Media Limited. All rights reserved.

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